​A Proven Formula for Buying Rental Properties

Multi-family properties offer you the opportunity to benefit in two different ways. Like most other real estate investments, rental properties have been increasing in value. They also offer you immediate cash flow from what is left after the tenants' rents are used to pay off your property's expenses.

There are some proven investing strategies that can help you maximize you profits.

1) Buy below market by 10 to 20%: This provides you with a great cushion in two situations: First, you've made an excellent return on your investment, and second, if you ever have to sell due to an emergency, you will find that the 10 or 20% you saved will allow you to lower your offering price to sell your property quicker.

2) Your property must generate at least a 15% return on investment: When you figure your return on investment, you take the rent minus your debt plus expenses. The answer must be equal to 15% or more, or the property is not a good investment.

3) Purchase in the right neighborhood: The neighborhood where the property is located should have a ratio of 35% renter to 65% homeowner to be considered a good neighborhood to buy rental properties in.

4) Rent: Make sure the proposed rent, or the achievable rent, is at least one percent of your purchase price. If it is not, then you won't make any money.

5) Perform due diligence: Look at any needed repairs before you buy. If they are costly, you may be going into debt before you even get started. If the proposed repairs plus the down payment exceeds 15% of your return on investment, don't purchase that property.

6) Cash reserves: Make sure to keep six months of cash in reserve for each rental property you own to pay debts and any unforeseen repairs. This will also help protect you in times of vacancies.

Follow these investing strategies and you will be on track to generate a second income that may help you retire from your first!